Asian markets swing as traders mull virus, vaccines and stimulus

Equity investors trod warily on Wednesday as they weighed hopes for a long-term recovery against immediate worries over surging virus infections, mutated strains and slow vaccine rollouts.

Signs that Joe Biden’s much-vaunted stimulus could face a tough ride through Congress were also tempering optimism, while there was increasing talk of a market correction following a recent global rally.

With new, more transmissible versions of the coronavirus spreading rapidly through populations, governments are being forced to impose strict containment measures, while their efforts to administer jabs are hampered by distribution problems.

Biden said Tuesday that getting people vaccinated was “a war-time undertaking” but added that an additional 200 million doses had been ordered and authorities would have enough for 300 million Americans—virtually the entire population—by autumn.

Still, there is concern that the drugs will be less effective against the new strains—though the makers have moved to reassure that they will not be.

Observers said that while the outlook was positive—the International Monetary Fund has lifted its 2021 global growth forecasts—the first few months of the year could be painful.

“Markets may continue to struggle for near term direction as Covid concerns continue to cast a pall over the proceedings, creating an unpleasant situation for both risk and healthcare concerns,” said Axi strategist Stephen Innes.

“With the virus spreading like wildfire in parts of the world, it is now possible that the first quarter will be a lost quarter and part of the second quarter also.”

He said worries about the virus mutations “will continue to linger over markets like a dark cloud until vaccine distributions get ironed out and a definitive drop in contagion levels can thoroughly support the vaccine efficacy results”.

Wall Street’s three main indexes ended in the red and Asia struggled to rebound from Tuesday’s sell-off.

Hong Kong and Shanghai fell again, having been battered Tuesday by the Chinese central bank’s decision to drain billions of dollars out of the banking system as it looked to prevent an asset bubble developing.

Talk of correction

There were also losses in Sydney, Manila, Jakarta and Wellington, though Tokyo, Seoul, Singapore and Taipei rose.

Focus is on Washington as lawmakers prepare to discuss Biden’s $1.9 trillion economic rescue package, though there are concerns that the final figure could be far lower as Republicans and some Democrats raise concerns about its size and some measures including a higher minimum wage.

Senate Leader Chuck Schumer suggested the final agreement might not come until mid-March, while Donald Trump’s impeachment trial could also jam up the timetable.

The Federal Reserve’s latest board meeting takes place later in the day and while it is not expected to make any major announcements, traders will be keen to find out about any new plans for monetary policy.

With markets at record or multi-year highs, there is also growing concern that they are set for a sizeable drop.

But Tai Hui, of JP Morgan Asset Management, remained upbeat.

“We remain constructive on global equities in 2021,” he said in a commentary. “In the near term, a lot of Christmas presents have already been unwrapped by investors—the new Biden administration brings reduced tail risks of trade policies aiming at China and proactive fiscal actions.

“We also have Covid vaccine breakthroughs and distribution as well as commitment by global central banks to keep monetary policy loose. Tactical investors digesting this good news and taking profit could well lead to a period of consolidation, or even correction.”

But he pointed out that “corrections are an integral part of any equity market”, adding that while the S&P 500 had seen an average intra-year drop of 13.8 per cent since the 1980s it had ended 30 out of the past 40 years on a positive note.

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